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Why hang on to old tech?

Principal Advisor, Productivity Commission
21 August 2019

As the opening chords of Country Calendar play, feel-good nostalgia for rural New Zealand washes over me.

When I’m at my mother-in-law’s place every Sunday evening, more often than not we end up watching New Zealand’s longest running TV show.

A recent episode was about Uncle Joe’s – a Marlborough nut and seed business. I already knew about Uncle Joe’s, having previously bought their delicious hazelnut spread. But I couldn’t help also thinking about our tech change and future of work inquiry.

I was most struck by Uncle Joe’s approach to technology. They have hand harvesters for walnut trees and a single person packages the spreads (including sticking labels on by hand). But machine tech also supplements “hand tech”, for example an automated walnut cracker has replaced a traditional hand cracker. And Uncle Joe’s uses others’ machine tech, including Garth Neal’s 70-year-old seed cleaner. (See photo: Garth Neal’s seed cleaner down the road from Uncle Joe’s – still going strong at 70 years young. Source: TVNZ, 2019.)

It got me thinking about different ways technology can come (or not come) into a business, and about what this means for the future of work.

In my work on transitioning to a low-emissions economy, I came across a paper by Adam Jaffe1, Richard Newell and Robert Stavins about technological change and the environment. Using examples such as the mechanical reaper of the nineteenth century and the widespread use of hybrid corn seed through to the use of robots in factories, the paper explains that the diffusion of new, economically superior technologies is a slow process.

There are two main explanations for the slow diffusion of new technology:

  • Potential adopters of technology are all different, so a technology that is generally better will not necessarily be better for everyone and may remain inferior to the existing technology for some users, for a long time.
  • Adopting new technology is risky. Managing that risk requires considerable information – both about the technology’s generic attributes and the specifics of how it would perform in any particular application. So, the diffusion of technology is limited by the diffusion of information.

The two main models of diffusion in the literature each emphasise one of these two aspects.

The probit model speculates that potential adopters fall along a spectrum or ‘distribution’ of returns that would be expected from the new technology. Because adoption is costly, at any moment in time there is a threshold point – potential users with returns above the threshold will want to adopt and the rest will choose not to adopt. Because the new technology will inevitably get cheaper and better over time, the threshold moves until it eventually sweeps over the entire distribution. If the distribution of underlying returns is normal, or something resembling a normal distribution, this gradual movement of the threshold across the distribution produces an S-shaped diffusion curve. 2

The probit model seems to provide a good explanation for the diffusion path of things like new energy technologies. Roger Fouquet and Peter Pearson explain that even when a new energy technology offers enhanced characteristics (such as ease of use or cleanliness) these may only persuade a few users to switch. It is not until the price of the tech falls sufficiently that is starts to displace existing tech for the vast majority of users.3

In contrast, the epidemic model presumes that the primary factor limiting diffusion is information. People or firms who have actually tried the tech are the most important source of information about that tech for potential adopters. Technology spreads like a disease, with the instigation of adoption being contact between those who have already adopted and the ‘uninfected’ population.

Getting back to Uncle Joe’s and Garth Neal’s seed cleaner – from the outside we can’t know how or why these firms have made the decisions they have about the technology they use. The relative cost of a new seed cleaning machine may make the 70-year-old seed cleaner still superior. Or the owners of these firms don’t know anyone who has tried out newer suitable technology.

Whichever the case, the story makes for great home-grown New Zealand television.

My take outs

  • Decisions about whether and when to adopt new technology, and thus the types of jobs and workers that are needed, are mediated through firms. To understand more about the future of work for New Zealanders, it is important to understand what influences technology adoption by New Zealand firms.
  • On that point, a consistent theme of New Zealand firm-level research is that the process of tech diffusion does not work as well as it could in New Zealand.
  • Workers in the nut and seed business in Marlborough seem unlikely to be disrupted by new technology any time soon!

Notes

  1. Adam Jaffe was Director of Motu Economic and Public Policy Research 2013–17. His paper, with colleagues Richard Newell and Rob Stavins The Induced Innovation Hypothesis and Energy-Saving Technological Change (1998) won the Association of Environmental and Resource Economists Award for Publication of Enduring Quality. He is currently a freelance economist working in Boston, Massachusetts.
  2. The proportion of users adopting a new technology typically follows an “S-shaped” path over time, rising only slowly at first, then entering a period of very rapid growth, followed by a slowdown in growth once most potential adopters have switched. See Figure 9.1 in Boosting productivity in the services sector.
  3. Fouquet, R & Pearson, P J G. (2012). Past and prospective energy transitions: Insights from history, Energy Policy (50): 1-7.

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